Why It Could Make Sense To Get Rid Of Patents Entirely, Even If They Work In A Few Cases

from the capture-and-expansion dept

Over at The Atlantic, Jordan Weissmann has a great article covering the latest paper from economists Michele Boldrin and David Levine (names that, I hope, are familiar to Techdirt readers), which argues why it might make sense to abolish the patent system entirely, even while admitting that patents may have some benefits in some cases. You can read the full paper here (pdf) where it makes "the case against patents." While this may sound similar to Boldrin and Levine's earlier works, this one goes further, and is definitely worth the read. In effect, they argue that not only do patents rarely help innovation, but, even worse, the existence of patents (even where they help) will only lead to the system being expanded to where they do more harm than good:

The initial eruption of small
and large innovations leading to the creation of a new industry -- from chemicals to cars, from radio and
TV to personal computers and investment banking -- is seldom, if ever, born out of patent protection and
is, instead, the fruits of highly competitive-cooperative environments. It is only after the initial stages of
explosive innovation and rampant growth end that mature industries turn toward the legal protection of
patents, usually because their internal grow potential diminishes and the industry structure become
concentrated.

A closer look at the historical and international evidence suggests that while weak patent systems
may mildly increase innovation with limited side-effects, strong patent systems retard innovation with
many negative side-effects. Both theoretically and empirically, the political economy of government
operated patent systems indicates that weak legislation will generally evolve into a strong protection and
that the political demand for stronger patent protection comes from old and stagnant industries and firms,
not from new and innovative ones. Hence the best solution is to abolish patents entirely through strong
constitutional measures and to find other legislative instruments, less open to lobbying and rent-seeking,
to foster innovation whenever there is clear evidence that laissez-faire under-supplies it.

The report does a good job highlighting how innovative firms and innovative industries almost never use patents (or use them sparingly). This should indicate that the basis of the patent system (that it's needed to encourage innovation) is shaky at best. But, they note that what little research there is on this tends to be ignored. They even highlight research that finds that IP strengthening almost always happens during times of "deregulation" where researchers (including Judge Richard Posner) struggle to figure out why that would be. Boldrin and Levine argue that the confusion here is mainly due to thinking of patents as "property" rather than as a monopoly restriction:

In fact, neither Landes and Posner nor, apparently, most
industrial organization researchers, seem interested in figuring out why patents are either ignored or
scarcely used in new and competitive industries while being highly valued and over-used in mature and
highly concentrated ones. The point here seems to be that, being themselves strong advocates of the
usefullness of patents in fostering innovations, the authors fail to recognize the intrinsic problem with the
design of the institution itself. Being not a “property” right but rather a “monopoly” right, patent
possessors will automatically leverage whatever initial rents their monopoly provides them with in order
to increase their monopoly power until all potential rents are extracted and, probably, dissipated by the
associated lobbying and transaction costs.

Boldrin and Levine also hit back at the charge that abolition of the patent system is too extreme given that it already exists. They note that other bad laws of a similar nature have been ditched as well:

Economists fought for decades – and ultimately with great success – to abolish trade restrictions.
It will not escape the careful reader that patents are very much akin to trade restrictions as they prevent
the free entry of competitors in national markets, thereby reducing the growth of productive capacity and
slowing down economic growth. The same way that trade restrictions were progressively reduced until
reaching (almost complete) abolition, a similar (albeit, hopefully less slow) approach should be adopted to
“get rid” of patents. Moreover the nature of patents as time-limited makes it relatively easy to phase them
out by phasing in ever shorter patent durations. This conservative approach has also the advantage that if
reducing patent terms indeed has a catastrophic effect on innovation the process can easily be reversed.

They admit that the poster child for the patent system, the pharma industry, may have to face the biggest changes, but also suggest that there are plenty of ways to still create the necessary incentives, including both lowering the costs of clinical trials and using prizes to award key drug treatment developments.

It's an interesting read. I will admit that I'm not fully convinced that the argument makes sense -- but I find the argument a lot more persuasive than most others I've seen.

Re: Patient Benefits !

Getting rid of patents ALWAYS looks good for those who don't have any, and are attempting to get into new markets or "innovate" by using other people's work.

It changes when you are on the other side, having spent the time and effort to actually create something new. Then suddenly it all makes more sense.

Ask the Japanese.

Ask the Chinese.

They will tell you - when they made knock offs and duplicates of other people's stuff, they hated patents and copyright. The more they started to make their own stuff, they more they like patents. China is just in that transition now, understanding that their work goes beyond just value added, and into pushing their own technologies. They are starting to like copyright and patents!

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"Getting rid of monopolies ALWAYS looks good for those who aren't in control of them, and are attempting to grow the market or innovate around the monopolist."

"It changes when you are on the other side, having spent the time and effort to build your business model and sit on it without having to worry about competition. Then suddenly it all makes more sense."

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Patents absolutely have a place in business and innovation but not in the perverted form we have become used to. Patents, in their current form, are being used to maintain monopolies and stifle innovation and competition. That is wrong and not what a free market is all about.

Patents need to be reformed so that they protect against cheap knock offs but do not kill off any competition who dare release a vaguely similar product. We need to stop the ridiculously broad patents that companies like Apple are allowed to gather so they can sue anyone who infringes on a patent that is so broad that it is impossible not to infringe upon.

No. No they don't. As soon as a business is granted a monopoly, they stop innovating and start concentrating on what they can do to increase their monopoly. It's classic rent-seeking behavior that will always be encouraged by patents and it is always harmful to innovation and markets. Any government granted incentive is counterproductive.

Simple translation: If you give them an inch, they will take a mile.
Copyright infringing translation: You give them an inch, they swim all over you.

Primary counter-argument: But if someone can just turn around and just use your invention, they have the advantage of never having to do any development costs. They can just steal your ideas.

Two issues with this. First if your invention was truly innovative, you have the advantage of first to market. Second, you can also implement improvements and new innovations quicker than a copycat. If you can't market effectively and have no more innovation to give, you deserve to be pushed out of the way by those who can.

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Patents need to be reformed so that they protect against cheap knock offs

Is there really any evidence to support this claim? For example, the fashion industry is brimming with cheap knock-offs, yet it thrives. Before you jump down my throat, obviously the fashion industry isn't a perfect analogue of any other industry. My point is it isn't self-evident that preventing cheap knock-offs is necessary to protect industries. That is something that should be proven if it's going to be a foundational purpose of the patent system - not taken on faith.

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My point is it isn't self-evident that preventing cheap knock-offs is necessary to protect industries.

I don't think I would sugarcoat it. EXPECT massive amounts of cheap knockoffs. That's better for consumers. Drive the price of everything down. Industries that depend on patents disappear.

So how do you compensate for the low prices? You need to find ways so that the cost of developing new items is as close to nil as possible too. That means changing the nature of work and ownership. Open source everything and put as much into commons as possible. If the world needs a new invention, collectively design and make it and reduce costs along the way.

But something like this is disruptive at all levels. I don't see too many people advocating the sharing of wealth and power across society.

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Rounded Corners is such a huge innovation that literally everyone is now copying, errr I mean stealing it and using it to improve their stuff. Why just the other day I saw some pre-school art work sporting rounded corners - the horror !!! They did not pay for its use, nor did they give it aqn ounce of thought how they have deprived the patent owner of their rightful fees because they certainly did not come up with rounded corners on their own ... this required many years of innovation based upon prior eureka moments and all these leached did was steal it.

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So, how do you explain real objects, made before the Apple company even existed, which have rounded corners? Carpenters have been rounding corners on things for ever. Jesus probably knew how to round corners.

So, the patent system trying to restrict the use of rounded corners, on the grounds that the concept was recently invented by Apple, is clearly based on a lie. The patent system is handing out monopolies based on lies. Therefore, abolish it.

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So, as younger, innovative companies get older and more stagnant, they start relying on patent protection more and more?
Yes, that was covered in the study.
What are you adding to the equation here, besides the word "copyright"?

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"Just because someone gets a copyright or patent doesn't mean they are the only ones creating. Your statement is ignorant and arrogant."

You can't get one without creating something. You can try getting a copyright on someone else's book (won't work) or a patent on something that already exists (mostly doesn't work, and won't hold up if you do).

Not all people who create decide to get a patent or a copyright. That is their choice (and loss).

Stop the insanity.

Nope. Those of us that have a clue just think that many patents are so obscene that it simply defies belief. That guy that was on the Apple v Samsung jury managed to get himself a patent for a Tivo knockoff. He even referenced the possibility of cobbling it together with standard off the shelf parts.

The problem isn't the 1 out of 100 patents that actually meets the original purpose of the system. It's the other 99 that are a burden to those that try to work to create something.

As a "mere practitioner", I am in the same boat as any patent troll wannabe. A jack*ss like you could come along and claim ownership over my own hard work.

THAT is the problem with IP run amok. It interferes with the next group of guys that want to be creative.

For those who object the patent system should be removed, here's a thought for you: Jonas Salk didn't rush to the patent office when he discovered polio, a vaccine free to manufacture all over the world.

Consider this, for a moment, that you're not using an iron lung because someone thought human life was better than a dollar bill.

Perhaps you should be thankful, rather than unappreciative of a system that's now killing people because viable medications have a ridiculous price tag or are forbidden to make without a "patent 'live or die' fee".

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it should be noted that Salk's research was funded by a non-profit, and that the movement from "idea" to "field test" didn't involve the current thicket of drug tests, reviews, small test groups, more reviews, and so on. I am sure that if they had to spend the type of money then that is involved today, they would have patent it just to make back their expenses.

It's insane to compare what was going on when drug research was picking low hanging fruit, and when there was almost no government approval or review in place - and almost no liability if things went wrong.

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didn't involve the current thicket of drug tests, reviews, small test groups, more reviews, and so on. I am sure that if they had to spend the type of money then that is involved today, they would have patent it just to make back their expenses.

All of those make it harder for the competition to just copy a product. There's a tremendous first mover advantage. Why does there need to be even more protections in the form of monopoly privileges on top of the regulations?

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Josh, duplication doesn't require any of that. Without patent protection, the knock off companies could be banging out the drugs in a very short period of time, with minimal government oversight. The expensive testing (and all that goes with it) would have been eaten by the original company that made the medicine.

The regulation HURT the one that actually brings it to market, not those that copy afterwards.

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1. you know, i'd be impressed by that argument IF i had even a microgram of respect for Big Pharma, who engage in rapacious behavior at every turn...

2. further, given that Big Pharma spends FAR MORE - i mean a LOT- on marketing bullshit than they do on actual R&D (with a LOT of marketing bullshit 'hidden' as R&D: 'research'), then i'm not too impressed by their herculean efforts...

3. not to mention, they piggy-back on TONS of research they semi-sponsor at PUBLIC universities, teaching hospitals, etc, who do Big Pharma's work/research with OUR public resources, THEN lock up all the research and results for Big Pharma's profit...

4. do i really have to unearth approximately 7 billion horror stories of Big Pharma bringing dangerous/toxic products to market, stiffing poor nations, locking up drugs that should fall out of patent by 're-purposing', etc, etc, etc...

in short, Big Pharma has ZERO goodwill, and an overall atrocious track record of screwing over the public for their profits...

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Josh, duplication doesn't require any of that. Without patent protection, the knock off companies could be banging out the drugs in a very short period of time, with minimal government oversight. The expensive testing (and all that goes with it) would have been eaten by the original company that made the medicine.

Read the linked story. It addresses that issue and has an answer.

It is far better expressed there than anything I could do in a comment- so please read.

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The mightiest country in the world has no industries left, but has this golden opportunity to forcefully push patents into being more valuable than the production and sales of the physical products themselves. Patents cover virtually everything, so no-one could ever make something without paying handsomely to patent owners, which mainly are U.S. companies and trolls.

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Where is that sad-but-true button when you need it?
This. The reason the US pushes so hard to stop other countries from "stealing their intellectual property" is because there's nothing else left to steal.

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Isn't it strange that a country with no industries has industrial production almost at an all-time high? (See: http://research.stlouisfed.org/fred2/graph/?id=INDPRO). The only reason that the US will nto be producing more than ever this year is the truly awful 2008 recession, when production fell about 15%.

Just like with agriculture in an earlier era, just because industrial manufacturing has declined relatively as an employer and as a share of the economy it doesn't mean that there has been any absolute decline.

engineers innovate lawyers don't

If you truly innovate you'll be:
- first to market with your new product
- first to build a reputation in this product category, people will associate your brandname/productname with a productcategory (did anyone ever say "portable cassette player", no you said walkman and everyone knew what you meant)
- The competition will have to play catch up, trying to out innovate you. If you innovate well enough, you'll stay at least one development cycle ahead of them. Since the rest has to reverse engineer the product before they can start to innovate on it. And even then they'll probably never reach the same quality due to things they can't copy, like at how many° the steel was tempered, or the plastic moulded... They'll run in to the same initial problems you've already conquered during the first production cycle.

The upshot for the general population is that competition will drive prices downward and speed up the release of new & better products. It's actually sad that I describe this as a side-effect for the benefit of the general population, because they should in fact be considered first when laws are made.

Re: engineers innovate lawyers don't

Does anyone else think that canceling Patents and making the First to Market position will probably bring jobs in manufacturing home, as the Innovative companies will want to keep their secrets longer? If you manufacture overseas, you have to tell them what to make, giving them a leg up.

I don't know if anybody haerd of this, but there is a compan y in belgium I think, that is under the process of finding buyers and users for a secondary screen filter on iphones that would allow solar charge to let the battery leave for longer.
However, since they were afraid of getting the design stolen, instead of one patent, they got more patents for each part of the solar screen so that it can attack competition much more easily than if it was merely for a "screen that allows cellphones to charge while exposed to light"

That also seems to be a reason of why the patent system is broken, by breaking down into multiple layers a single patent, it then becomes a weapon that can act beyond merely protecting. Each layers, instead of becoming a bunker for defense, becomes instead multiple tanks or ships used to attack anything that looks threatening. In that sense, I could make a comparison to the atomic weapon which is used as a deterrent.
Patents indeed become a deterrent to innovation because innovators are afraid that this nuclear weapon will be used against them, and when they do dare to fight back to acquire that nuclear weapon, then all the countries with said weapon unleash at them.
It's pretty much a question of "I have the right to have this weapon, but you don't because there are too many already and it's very dangerous".

I'm under the impression that the patent system was built to grant a monopoly on ideas. The very fact that you can keep an idea under lock and key and then use the legal system to sue others for thinking of something similar is essentially a government-imposed prohibition on thought.

I'm not quite sure the system should be abolished with no substitute just like Mike but these systems are so broken that abolishing seems to be the best approach since the lobby won't allow sane and reasonable reforms.

The idea of reducing the patent terms to see what happens sounds pretty good for starters.

IP-protectionism as resurging Trade-protectionism

It explains how legislators get bought into the protective angle of such legislation, the need to assert this (illusory) protection and exports those rules to the entire world.

The fact is has become so much of an obsession fo the US to bully IP in every single international treaty speaks volume about the lack of boldness and self-confidence in their own (seemingly) national economic agents and capacity to out-innovate the international competition. Those industry want protection, not incentive.

That's also why they so much insist on the logic that the more protection, the more incentive to create as a proven matter of fact that it is not.

Re: IP-protectionism as resurging Trade-protectionism

It explains how legislators get bought into the protective angle of such legislation, the need to assert this (illusory) protection and to export those rules to the entire world.

The fact it has become so much of an obsession for the US to bully IP chapters in every single international treaty speaks volume about the lack of boldness and self-confidence in their own (seemingly) national economic agents and capacity to out-innovate the international competition. Those industries want protection, not incentive.

That's also why they so much insist on the logic that the more protection, the more incentive to create as a proven matter of fact that it is not.

As widespread tarrifs and trade protectionism was proven detrimental to overcoming previous world-crisis, the same logic is coming back in disguise with the present hard times via IP-maximalism.

Boldrin and Levine fall prey once more to a lack of understanding about what the patent system actually entails, as well as engage in a bit of revisionist history (e.g., Tektronix, which is actually the Alappat case). Maybe they make credible economic arguments, but it is hard to give them serious consideration when many, many of the factual predicates are off base.

Who is going to lobby for this?

I agree that the patent system is broken. And I could also agree to eliminating patents (but I also want massive changes in world economics -- far more extensive than most anti-IP people propose).

But I can't see the end of patents happening unless there is some major lobbying money put behind the idea. What companies or groups would do that? Seems like most politics in DC happen when a rich company (or group of companies) act in their self-interest. While there is a lot of grumbling about patents, which companies would choose whatever political money they have to spend to champion this versus whatever else they might want in terms of laws? That's the problem: once a company is rich enough to be able to pay for lobbyists, they are also rich enough to want to start protecting their turf.

In other words, what rich companies have decided "the end of patents" is their biggest cause and will do everything in their power to end patent laws?

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Just get rid of monetary system. Not impossible at all with the technology we have today. Cry me a river.

This is exactly the kind of thing I am thinking about. Let's get rid of patents, but along with that, downsize corporations, eliminate scarcity as much as possible, etc. As soon as someone produces something, make it so widely available that the price drops to next to nothing. Imagine a world where competitive advantage pretty much disappears.

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Do not get confused between scarce goods and infinite goods. Infinite goods can have their price driven to zero by greatly increasing the supply (that is, copying). Scarce goods have the supply limited by some external factor, such as the supply of labour or raw materials. Those goods cannot have their price driven to zero.

However, by the application of infinite goods, namely thinking up a substitute, the price of scarce goods can be driven down. The price reduction happens by reducing the demand for the original good. That demand goes down by customers buying the substitute good instead.

Notice that this process is iterative. Infinite goods (namely new techniques) are applied again and again to deal with shortages and high prices. Restricting the use of infinite goods will make shortages and high prices worse. Thus, the standard of living of ordinary people would be deliberately reduced. That is why restrictions on the use of infinite goods are morally wrong.

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I'm not confused by the difference between infinite goods and scarce goods. There are certain natural resources that are scarce, but labor isn't scarce. And as far as producing physical products, we're already producing more than the world can use for most items. When we have sophisticated 3d printers, the cost of an item will come down to the cost of the material used in the printer. The cost of the printer itself can be spread among many users.

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There are certain natural resources that are scarce, but labor isn't scarce.

Labor is scarce. If you want more labor, you have to pay more to get it. If labor were an infinite good, you could have as much of it as you wanted for zero or close to zero marginal cost. This is clearly not the case.

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If you open source and everyone volunteers their time, it's a non cost. If so many people are looking for jobs they are taking a minimal amount of money, it isn't free, but it isn't scarce. Basically labor is unlimited now because people are either working for free or for little. And for every job out there, someone is trying to figure out how to reduce the labor costs to zero by having a machine do it.

Labor is abundant. And I can also point you to charts showing the amount of money in this country going to wages is declining while corporate profits are increasing. The wage earner is disappearing.

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Yes. A thousand times yes. To all of your posts. *That* is how our global infrastructure should look.

Soon enough we will likely be technologically capable of creating a society where all basic needs are met, for the most part resources are essentially free, and progress and innovation is a completely cooperative venture and nearly entirely driven by voluntary work.

The biggest hurdle will be overcoming the adherence to outdated models and mindsets in order to effect the necessary changes and have the society function properly.

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Ponder this. Let's say research becomes free because people open source and also copy what others have done.

Labor is nearly free because there are so many people willing to work for little or nothing, and automation will also take over many tasks.

So that leaves natural resources that might be scarce. Are we going to get to a point where people go to war over water, land, minerals, etc.? Probably.

Other than certain natural resources, everything else we either already have in excess or can be duplicated with minimal expense.

So where are the scarcities? Sure, you can say attention, relationships, etc. But if most of the world is unemployed, they won't have money to pay for these scarcities and will have to make due without them or with substitutions. The wealthy, on the other hand, will have an excess of money and will trade amongst themselves expensive artwork, property, etc. So their world, where they decide what is scarce and will pay for it, is pretty much uncoupled from the rest of the world.

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The world has excess labor capacity.
The world has excess manufacturing capacity.
The world doesn't have excess for some raw materials, and that is likely to be a battleground.

I'm totally fine with getting rid of IP protections and, for example, allowing people to get a perfect knockoff of an iPhone for a fraction of what a real one costs. But I would also like to see economic thinking adjusted to account for hypercompetition and deflationary pricing. Sell a product today and see multiple copies available almost immediately. One of the advantages of 3D printing is that you no longer need economies of scale to drive down costs for whatever the printer can make. Hopefully that will both keep costs down and eliminate waste.

Abolishing patents

Being an IP attorney, I am torn: I have a client who developed technology that he could license in PR China, and get a pretty good revenue - if the USPTO would approve his (clearly patentable) invention - but he is a small entity, and the Office has never shown much interest in supporting small entities.
Meanwhile, the abuses by large entities are making patents a major factor in reducing innovation, and destroying jobs.
I don't suppose a major reform - wait, we tried that, and things got worse.

How to get rid of pharma patents.

Instead of patents I suggest sharing the clinical trial costs as follows:

Company A develops and brings drug X to market. Let's imagine the bill for clinical tests was $900 million (including interest paid to financiers).

Company B and C notices that drug X looks like a winner and want to manufacture it. To get permission from the FDA to sell their versions they have to pay $300 million each to A, splitting the bill evenly between the three companies. In addition they would have to pay for testing and certification that their factories can produce the drug with equal quality and effect as A.

While B&C ponders if manufacturing drug X is worth that $300 million fee, company A can use their first mover advantage to recoup the R&D spending they had beyond the clinical trials.